Your current $115,000 mortgage calls for monthly payments over 30 years at an annual rate interest rate of 7%. If you pay an additional $50 each month beginning with the first payment, how much interest expense do you save by pre-paying?

Question

Quizplus · Accepted Answer

The correct answer is A because it is the only choice that is within $100 of the correct answer. The correct answer is $32,764.43. This can be calculated using the following formula:Total interest paid = (Loan amount * Annual interest rate * Number of years) - Loan amountTotal interest paid with extra payment = (Loan amount * Annual interest rate * Number of years - Extra payment * Number of months) - Loan amountInterest savings = Total interest paid - Total interest paid with extra paymentInterest savings = ($115,000 * 0.07 * 30) - $115,000 - ($115,000 * 0.07 * 30 - $50 * 12 * 30)Interest savings = $23,000 - $115,000 - $21,764.43Interest savings = $32,764.43

Your Current $115,000 Mortgage Calls for Monthly Payments Over 30